APPLE MUSIC CONTRACT: FEARS GROW IT WILL ‘PUNCH HOLE INTO MUSIC BIZ INCOME’
JUNE 10, 2015 BY TIM INGHAM
Will music from the likes of Adele, Arctic Monkeys and The Prodigy be available on Apple Music when it launches on June 30?
According to MBW’s sources… don’t count on it.
The three major labels have signed a licensing deal for Apple’s new service, we’re told.
But no agreement has yet been reached between Apple and Merlin – the body representing the commercial interests of independent labels including XL, Domino, Matador, Cooking Vinyl, Rough Trade, [PIAS], Ninja Tune, Armada and Razor & Tie.
[Update: We’re now told that, rather then negotiate via Merlin, Apple is aiming to strike direct licensing agreements with individual independent labels – but that the typical consensus among the indies is reflected below. One source even told MBW: ‘No indie worth their salt will sign this.’]
The sticking point? Apple’s refusal to offer any royalty payments to indie labels for music played during the first three months of Apple Music, when it will be completely free to listeners.
“We’re used to helping with free trials when streaming services are not established,” one independent label exec told MBW.
“But this is Apple, with hundreds of millions of customer credit card details. Offering no compensation at all to labels for a trial that will help Apple sell its devices is hugely disappointing.”
“NOT BEING PAID BY APPLE MUSIC FOR THREE MONTHS IS BAD ENOUGH, BUT THIS IS ABOUT TO PUNCH A BLACK HOLE INTO MUSIC INDUSTRY INCOME THIS YEAR.”
They added: “Not being paid by Apple Music for three months is bad enough; it’s going to really hurt cash flow for independent labels and punch a black hole into music industry income this year.
“But Apple Music will also hurt other revenues that we could have otherwise relied on. For example, we expect iTunes to interrupt people downloading tracks – encouraging them to join this great new streaming service. That’s deliberately cannibalising sales.
“And if we’re all scared of not making money during Apple Music’s free three months, then nothing will be released and physical sales will tumble.
“Why would you ever release into a window where you can’t make any money on the biggest digital music retailer’s platform?”
Should indies and Apple reach a stalemate over the three-month free trial – which may be static from June 30 or unique to individual sign-up dates – then it will be up to individual labels to decide whether their music remains on Apple Music unlicensed, or is pulled down.
Another indie label source told us that, regardless of whether a deal is struck with Apple before June 30, they fear that the launch of Apple Music’s free trial will hurt usage frequency on Spotify – and, therefore, their bottom line.
“Even if people keep their subscription of Spotify and experiment with a free Apple Music option for a few weeks, it could damage our income significantly,” they said.
Other details revealed by a leaked Apple contract on Digital Music News include a typical 58% royalty payment rate from Apple Music to rights-holders once the free trial period has completed.
“WHY WOULD YOU EVER RELEASE INTO A WINDOW WHERE YOU CAN’T MAKE ANY MONEY FROM MUSIC’S BIGGEST DIGITAL RETAILER?”
On the surface, that compares unfavourably to Spotify, which pays 70% of net revenues to music rights-holders.
However, when you dig into the numbers, the two may actually be within touching distance of one another.
[Update: Sources suggest that the 58% is creamed off post-tax subscription income and distributed to labels, but that an additional 12% goes to publishers… making Apple’s royalty split (70%/30%) exactly the same as Spotify’s.]
Apple announced two price options for Apple Music subscribers on Monday night at WWDC: a standard $9.99-per-month option, and a $14.99-per-month tier for families of up to six people. Music Business Worldwide